Threats of a general strike in Spain intensified this weekend following Friday's decision by the credit agency Fitch Ratings to downgrade the country's debt from AAA to AA+.
The latest blow to Europe's fourth-biggest economy comes just days after a series of austerity measures scraped through the Spanish parliament by a margin of a single vote. Designed to rein in a deficit behind Ireland and Greece in the eurozone, the measures to passed thanks only to a series of abstentions.
Any feelings of optimism following the ultra-close vote were quickly dented by the bleak statement from Fitch on Friday.
But Spain's deficit is far from being its only economic headache: unemployment, for example, stands at over 20 per cent, double the 2007 level.
Social unease at the austerity measures, which includes a freeze on pensions, is also on the rise.
Spain's two largest trade unions have threatened a public-sector strike next week over the austerity measures, due to cut €15bn off the Spanish budget, which would see a 5 per cent cut in civil service pay.
Fitch's head of Europe, Brian Coulton, said: "The process of adjustment to a lower level of private-sector and external indebtedness will materially reduce the rate of growth of the Spanish economy over the medium term," he said
It could hardly have been a more cheerless message for a country that has only just limped out of its worst recession in 50 years with a growth rate of 0.1 per cent in the first quarter of this year.
Fitch's downgrading also comes barely a month after Standard & Poor's had cut its own rating for Spain to AA, with only Moody's retaining an AAA rating for the country.
Spaniards are now bracing themselves for a VAT rise of 2 per cent next month, while the government has warned that growth will slow in 2011, from 1.8 per cent to 1.3 per cent because of the austerity programme.
When the news broke, the euro fell as low as 1.2288 against the dollar and the Dow Jones index also dipped by about 75 points, ending a miserable month for stocks and reflecting fears of the crisis in Greece spreading across Europe.Reuse content